September 2013 Newsletter

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In This Issue

OCC Announces Leadership Changes

After spending his 40-year career at OCC, Chairman and Chief Executive Officer, Wayne P. Luthringshausen will retire, effective December 31, 2013. OCC received regulatory approval to separate the roles of Chairman and CEO upon Mr. Luthringshausen's retirement. OCC's Board of Directors named Michael E. Cahill as CEO, and Craig Donohue as Executive Chairman, effective January 1, 2014.

Mr. Luthringshausen was part of the team that created the exchange-listed options industry in the U.S. In April, 1973, with the commencement of trading at the Chicago Board Options Exchange, Mr. Luthringshausen was appointed Executive Vice President and Secretary of the Chicago Board Options Exchange Clearing Corporation (CBOECC) and in August, 1973, was appointed President and CEO. In January, 1975, the CBOECC became The Options Clearing Corporation, and in 1977 Mr. Luthringshausen became OCC's Chairman as well as CEO.

As CEO, Mr. Cahill will report to Mr. Donohue and be responsible for carrying out the policies of the Board and thus for all aspects of OCC’s business that do not report directly to the Executive Chairman. The CEO’s focus will be on the effectiveness of day-to-day operations and strategic initiatives. Mr. Cahill joined OCC in 1982 as a Risk Analyst, and was elected President and COO in 2002, having previously served as Treasurer and Chief Financial Officer.

Mr. Donohue has more than two decades of experience in global financial markets, having most recently served as Chief Executive Officer of CME Group from 2003 until May 2012. He will be responsible for the control functions of OCC, including enterprise risk management, internal audit and compliance, as well as for external affairs, and for presiding at all meetings of the Board.

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Options Disclosure Document Undergoing Restructuring

The options industry's risk disclosure document, "Characteristics and Risks of Standardized Options," (ODD) is being analyzed to determine ways to make it more concise, clear and meaningful to explain risks to investors.

The Options Industry Council’s Roundtable saw the need for a revision of the booklet that investors are required to read prior to buying or selling options, and urged OCC to work toward obtaining SEC approval to develop a “plain English” document that more clearly explains the risks involved in trading options.

"We need to create an education piece that is written in a way that all investors can easily comprehend."

OCC formed a committee to provide input on a restructured ODD. The group is chaired by Carolyn Mitchell, OCC First Vice President of Business Operations, and is comprised of exchange and clearing member representatives, along with OCC representatives. Two subcommittee working groups are focused on product and risk. Objectives include reducing the document from 183 pages to fewer than 50, eliminating redundancies, improving the management of supplements and re-organizing the material into two sections: strategy risk and product risk. In addition, the committee is seeking SEC approval for an electronic version that allows for keyword searches and links to deeper descriptions of the selected topics.

To quote Sy Syms, the famous clothing retailer, “An educated consumer is our best consumer, and we need to improve upon the basic communication building blocks like the ODD to better inform them of the characteristics and risks of exchange-traded options,” said Alan Grigoletto, OIC Vice President of Options Education. “To that end, we need to create an education piece that is written in a way that all consumers can comprehend.”

Just recently, OCC met with the Financial Industry Regulatory Authority, Inc. (FINRA) to discuss the best approach to achieve SEC approval of a more effective ODD. OCC distributed a survey to collect investor and broker dealer feedback. The next step is creating a sample chapter to use in a discussion with the SEC. Information required to be in the disclosure document is outlined in SEC rule 9b-1.

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From the Hill

In early September, Members of the House and Senate returned to Washington from their five-week August break. During their time back home in their districts, the Members no doubt got an earful from their constituents about the many issues facing them this fall. Perhaps reflecting the experiences of his conference, Majority leader Eric Cantor sent a memo outlining the priorities of the House for the fall to the House Republicans. The top three priorities were dealing with Syria, passing a Continuing Resolution (CR) to fund the government past September 30 and raising the debt ceiling as the three top priorities of the House.

While tax reform was not specifically mentioned in the memo, Ways and Means Chairman Dave Camp (R-Michigan) stated as recently as September 10 that it is still his intention to pass tax reform out of his Committee by the end of the year. Possible action in the Senate is less clear because Senate Finance Committee Chairman Max Baucus (D-Montana) has not given any indication when, or even if, he plans to introduce comprehensive tax reform legislation.

In the meantime, Chairmen Camp and Baucus have spent the past few weeks touring various businesses, large and small, as part of their “road show” to drum up support for tax reform. It has been widely reported that many companies and even the Obama administration have expressed more interest in reforming the corporate tax code than the individual tax code, and executives with most of the businesses the Chairmen have visited, including Intel and FedEx, have reinforced that narrative. But both Chairman Baucus and Camp have repeatedly stated that it is not their intention to introduce or pass any sort of tax reform legislation in a piecemeal fashion.

"The top three priorities were dealing with Syria, passing a Continuing Resolution to fund the government past September 30 and raising the debt ceiling as the three top priorities of the House."

The Senate Banking Committee has turned its attention to housing finance reform, and a bill is expected to be introduced and voted on in the Committee within the next few months. It is widely expected that whatever legislation emerges from the Senate Banking Committee will be very different than the version passed by the House Financial Services Committee in July. In the House, Chairman Jeb Hensarling (R-Texas), who has made housing finance reform his top priority, purposefully created a conservative-leaning bill with the idea that it would be modified to attract bipartisan support after the Senate passes its version. While there may be an occasional Dodd-Frank oversight hearing, housing finance reform is expected to take up most of the attention of the Senate Banking Committee this fall.

In regulatory news, two new Commissioners were approved by the Senate and will be joining the SEC next week.  Kara Stein, longtime aide to Senate Banking Securities Subcommittee Chairman Senator Jack Reed (D-Rhode Island) and Mike Piwowar, former chief economist of the Senate Banking Committee Republican staff, will be replacing outgoing Commissioners Elisse Walter and Troy Paredes, respectively. The CFTC will also have a new Commissioner sometime soon, with President Obama nominating finance executive Christopher Giancarlo to replace former Republican Commissioner Jill Sommers, who left the Commission in July. The Senate is expected to consider Mr. Giancarlo’s nomination in the near future.

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TABB Study Reveals European Market Structure Trends

The Options Industry Council (OIC) commissioned the TABB Group, a financial market research and strategic advisory firm, to conduct a study on European demand for U.S. equity exposure, as well as market structure evolution, technological needs and regulatory considerations, among others. The study, “European Interest in U.S. Options: Factors Driving Renewed Demand,” is an intermediary report and will be followed with a more extensive report in 2014.

Key findings illustrate:

  • Excellent depth of liquidity of U.S. equity options markets compared to the European market.
  • European investors now hold $1.9 trillion in U.S. equities, up 75% from 2009.
  • European regulations are pushing business to U.S. markets.
Read the full report findings here.

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ISE Gemini Options Exchange Joins OCC

OCC and the International Securities Exchange (ISE) announced that ISE Gemini has become an OCC participant exchange. ISE Gemini, ISE's newly launched options exchange, began operations on August 5, 2013, bringing the total number of options markets in the U.S. to 12.

With the addition of ISE Gemini, OCC now provides central counterparty clearing and settlement services to 18 exchanges and trading platforms for options, security futures, financial and commodity futures and securities lending transactions.

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Mark Your Calendar

The 2014 Options Industry Conference will take place in Austin, Texas, April 30-May 2. More details to come!

Clearing News & Resources

Volume Update
Interested in reading about what is happening with options volume? Click here for OCC's monthly volume press release.

OCC News Archive

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The information contained in this newsletter is for general information purposes only. Although every attempt is made to ensure the accuracy of the information, OCC assumes no responsibility for any errors or omissions. All materials pertaining to rules and specifications are made subject to and are superseded by the By-Laws and Rules of OCC.